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Politicians turn Chidambaram's dream budget a nightmare
PRESS TRUST OF INDIA
New Delhi, Dec 28: The country's economy remained depressed and a matter of concern for the government and corporate sector throughout 1997.Its sluggish growth despite strong fundamentals presented a puzzle for the planners, economists and business leaders. The macro economic fundamentals, in terms of low tax rate regime following finance minister p chidambaram's ''dream budget.'' record forex reserves of about $30 billion, a low inflation rate hovering around five per cent, and a yet another good monsoon were strong as never before. The economy is expected to register a lower GDP growth of about six per cent in 1997-98 as against 6.8 per cent last year and industrial output of four per cent against 11 per cent. Also in store is a steep fall in exports, continued slump in capital market, severe demand recession, build up of high inventories, fall in employment, depreciation of the rupee, drop in tax revenue by about 1.5 per cent and low rate of investment and a higher than targetted fiscal deficit of
4.5 per cent. Industry has attributed the economic enigma to low level of development expenditure, particularly in the infrastructure sector which resulted in the steep fall in the demand of steel and cement and a hike in non-plan expenditure by as much as 15.3 per cent as compared to last year. The government succumbed to pressure of its employees and incurred an expenditure of Rs 18,000 crore by implementing the pay commission's recommendations. The continued rise in subsidies and the inflow of cheap imports as a result of lowering of import duties with attendant adverse affect on a number of industries, including paper, were the contributory factors. However, the greatest single factor which adversely affected the many single factor that adversely affected the economy was the political instability and a government at the centre unable to take hard economic decisions. Despite contradictory stands taken by its constituents, the United Front government did take some initiatives in the area of economic
reforms during the year. These included dismantling of the adminsitrative-price mechanism (APM), tax reforms, resulting in historic slashing down of direct and indirect tax rates, opening up of the internet and other telecom reforms, autonomy package to ''navratnas'' in public sector, setting up of disinvestment commission and expanding the list of industries for automatic foreign- direct investment approval to 51 per cent. However, the government could not not master required support in parliament to get through economic bills, like the new companeis and the income tax law, one replacing the Foreign Exchange Regulation Act (Fera) with the Foreign Exchange Management Act (Fema), the money laundering prevention bill and the legislation for opening up of the insurance sector. Also disinvestment and public sector reforms were put in cold storage. During the year, the industry pleaded with the government to increase capital outlay, reduce non-plan expenditure, including subsidies, freeze import duty or even
raise it in some specific cases to safeguard the domestic industry, strengthen the anti-dumping and safeguard mechanisms, privatise all strategic PSUs and further lower the real interest rates to international levels. Industry has suggested that India should take a clear stand with the World Trade Organisation (WTO) in regard to accelerated phase out of quantitative restrictions and other import curbs and more time needed to enact the new patent law, taking cognisance of the interests of Indnian agriculture sector and pharmaceutical industry. India suffered a setback as the WTO panel ruled in favour of United States and against India's desire to preserve the existing patent law. The stock market continued to be depressed denying the corporates equity, the cheapest route to funding. Steep fall in share prices locked up the investors' money which affected business operations.
Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.
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